I've long said there are two ways people ruin their finances — loss of income or large uninsured expense. I've recently become aware of a third. (See also: Pre-Career Advice)

The new way to ruin your finances is this — take on enough student loan debt to get a college education.

This is new. It used to be that most people who ruined their finances did it one of the old fashioned ways:

They suffered a sharp drop in income (such as by losing a job)

They incurred a large, uninsured expense (such as losing a lawsuit)

I suppose, in a sense, student loan debt is just a special case of the second, with the large expense being the cost of going to college. But student loan debt is special in a lot of ways.

First of all, it's the only kind of debt still out there where lenders will send you money without any regard for how you might be able to pay it back. (And why should they care? Usually, the debt is guaranteed by the federal government. Plus, you can't escape it, even in bankruptcy.)

Another way it's unusual is that the very first loan — often arranged before you even turn 18 — sets you on an irreversible path. Oh, it's not completely unchangeable — you can change your major; you can even switch to a different school — but if you change your mind and decide that you'd rather not go deeply into debt, you're left without the degree that was your main hope for earning enough money to pay the loan back.

It's as if you'd borrowed money to buy a car without realizing that, in practical terms, you'd committed to buying seven more cars over the next four years — and if you decided you'd rather not, your first car quits running but you have to pay for it anyway.

So, what are you're choices? Here are my thoughts:

The Old Usual Route

The standard advice has long been to pick the best college you can get into and borrow whatever it costs to get a good education.

This may still be a good choice — particularly if someone else will pay a lot of the money, so that "whatever it costs" doesn't put you in debt for the rest of your life.

So this is still a reasonable option for plenty of people. In particular, it's a fine option for rich people. (And we're not just talking about the 1% here. Probably the whole top 5% can afford to send their kids to the college of their choice with little or no borrowing necessary, if they want to bad enough.) It may also be an option for people with mad skills in one area — sports, music, anything that catches the eye of someone with scholarship money to dole out.

If this is you, you hardly need my advice. Carry on.

The (Now, Sadly Risky) High-Reward Route

If you really want to do something that pays really well, you can just grit your teeth, borrow the money, and then hope that all goes well and you earn enough money to pay off your debt.

There are a lot of jobs that will earn you enough money to cover those monthly bills. The old standbys of doctor and lawyer have the downside that you come out of college needing several more years of further study, but there are others. Any of several flavors of engineer will do the trick.

Because the truth about student loan debt hadn't been so apparent until the last few years, a lot of people took this route without looking at how much money they could earn with degree that they'd spend all the money earning. This is why there are so many people out there with degrees in English or social work suffering the ungentle ministrations of our modern debt collection system.

If this is you, my advice is that you only go down this route if you really want to do whatever it is you're being trained for. Don't do it because someone said petroleum geologists make good money; do it because you're really interested in rock strata. And then only do it if you're prepared to take the risk. If anything goes wrong — if you don't like the work, if you can't do it, if you guess wrong about there being good paying jobs a few years from now — you're screwed.

The "Not Going to College" Route

If you don't go to college, you can jump right in doing something to earn money.

Of course, that's also the rub. How will you earn that money? If you jump in waiting tables, working at a gas station, or moving furniture, you'll start earning some money, but there's not really much of a path up from there.

If you like the idea, try it for a summer. Then, look around. If you're where you want to be, fine — you're all set. If not, it's probably not too late to go to college.

But what if you have some much more interesting way to earn money? What if you want to do something creative or artistic? What if you have a great idea for starting a business?

In that case, it might well make the most sense to just jump right in and do whatever it is. Maybe you'll be able to make a living at it, and maybe you won't, but it's harmless to try. It's harmless, that is, unless you run up a lot of debt. Then you're screwed just like you'd borrowed the money to go to college, except you don't even have a degree.

The Cautious Route

Probably the safest thing to do is to minimize your borrowing by getting the cheapest education possible — go to community college for two years, then transfer to a state school where you can pay in-state tuition.

This is not a bad option. It used to be that there were a lot of gradations of schools, with a wide range through the middle, but I think the advantages of a mid-tier school over a bottom-tier school are smaller than they used to be. (For a lot of reasons, beginning with the Internet.)

You don't get a better education by going to a better school; you get a better education by using your time there as an opportunity to transform yourself.

Already Down that Road?

If you've already picked a route — or, more accurately, parents and guidance counselors and some high school kid picked a route and now you find yourself on it — your options at this point are limited.

If you're still in college, you're on the "potentially high reward" route. If it's not too late, make it a priority to get a degree that will help you earn the money to pay off the debt.

If you're out of college and — for whatever reason — you're not earning enough to pay your expenses and cover your debts, your options are limited. Do look into options for restructuring the debt. And don't forget that Wise Bread is full of tips on living large on a small budget — which is probably your best remaining option.

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Jamie #1

Can we stop painting the humanities as a one-way ticket to financial hell? It's not the degree that tanks people, it's more often what they're made of.

My brother has a STEM master's and works barely full time in retail and I've got engineer and architecture friends working as outdoor guides, freelancing web design under the table to supplement unemployment, taking odd jobs, etc. Most of my peers with English degrees (that I met at a competitive school) were very driven and have stable employment, myself included.

You've got to have some hustle on you regardless of your education or you'll struggle to make the best of whatever hand you have to play.

Absolutely. Many people get degrees in English or Comparative Literature and go on to get good jobs in their field. Living in a college town, I know plenty of them.

My point is simply that it was a lot easier to make a go of it in such a field when you came out of school with your student loan debt in four figures than it is when you come out of school with student loan debt in five or six figures.

Jamie #3

Indeed, it just makes me really nervous when we write off the difficulties still encountered even with a 'lucrative' STEM degree (at any level). I ended up with 5 figures in debt, but that number was about 1/2 my starting salary, and as such is quite manageable. I'd love to see some sort of federally backed program for refinancing student loans. That way no one's "off the hook," but a lot of us could either pay off the loans a lot faster or use the difference in monthly payments to shore up financially a bit.

StudentLoanSadness #4

This is in reply to Jamie's second comment. I totally agree there needs to be a way for students to refinance their debt. I graduated from grad school two years back and in a good faith effort of wanting to get my payments underway, consolidated my loans and started paying them back immediately. Unfortunately when I consolidated, the rate was double what it is now. If I had only waited a while, I could have locked in a lower interest rate, saving me a lot of money in the long run. I have only federal loans, and have been told the only way to refinance is to take out more loans, and then consolidate them. It seems like there has to be a better way! :(

Great article. I agree with most points, but there's a little more that I'd love for potential students to consider.

I went to a two-year college, and after my first semester, I didn't have to pay for it. IMO, there are a few very important pieces of education that everyone should know about NOT paying back a college degree:

1. Volunteer and be involved in college activities. It paves the way for scholarships and gives you something to write about on applications.
2. Often scholarships at community colleges don't get a single application. I've been a recipient of many scholarships, and I've also sat on scholarship committees with no applications for some scholarships. All you have to do is APPLY to get money to help offset school costs.
3. Volunteering opens up paid job opportunities. For me, I was offered a very good paying part-time lab tech job on campus, in my field. That was priceless.
4. When you volunteer and become involved, you network the same way that people believe is only possible at Ivy League colleges. Why was I successful in landing a good job out of college, in IT - an over-saturated field to start? It was because I had a personal recommendation from the President of the college, the Dean of Students, and the Director of the Small Business Development Center. They all appreciated the services I provided to the college. Did I need to get paid for them? Heck no!
5. I never finished my bachelors, though I thought a Ph.D. was the pot-o-gold I needed. I have a great job now with just my associates degree. Sadly, I took out student loans with no bachelors to show for it. It turns out I didn't need it anyways.
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If you get a good job out that you love out of high school, take it! My first job - in a factory, counting paper - made me really understand where I didn't want to be. The help wanted ads steered me back to school.

I've actually got a post that talks about spending the time you have in college that you might otherwise be working at some crappy job just to make pocket money trying out whatever it is that you're thinking of making a career (even if you have to do it as a volunteer):

Yes, very good points. I also got a lab tech job as a volunteer, and was later hired for pay. I worked at that job through 3.5 years of college, and that reference continues to be a valuable one. It also helped me get accepted to a top-tier grad program on a fellowship.

If you can possibly afford it in the short term, a volunteer job in your field can be worth far more than a paying job without a career future.

Charles #8

A good article. Thanks for sharing, Phil. I guess I was lucky or perhaps hard-working. I had no student loans and no student debt from undergrad or grad degrees, but I did work half-time as an undergrad and full-time as a grad student.

But one data point does not define a curve. I suspect we can all point to friends with degrees in STEM or business who are neither employed nor paid as they would have hoped with such a degree, and we can all point to other friends with degrees in the Humanities who do well. No single story can define a trend.

As you say, it is ultimately how we apply ourselves to our education no matter what school we attend, what we get out of our education, what we make out of our education that determines what we achieve.

I'm weary of more talk about how students are to blame. There were some students who scammed the system years ago. The vast majority who have massive student loan debt were scammed BY the system. That part is never discussed.

I agree. And if employment listings in my area are any indication of trends, then you'll be competing against many non-degreed folks for those $10-15/hour jobs. I think it's an insult to folks who have put so much into their education and then are "rewarded" with a job that doesn't even allow them to live in their own apartment, much less pay back those loans.

If I had the benefit of hindsight, I would have either a)went to a cheaper school (strongly discouraged at the time because I went to a private high school) or b)waited until I could afford the school and then went. Even if it meant being well into my 20's before I did it. Having student loans is a horrible idea. You get tons of money before you have concept of what the amount you have to pay back really is, then you are on the hook to pay it back soon after school, whether you have a job or not. Sure, there's deferments, but you're just delaying the inevitable (and killing your credit). Then God forbid, you don't make as much money as you hoped or go a long period of time without a job. Or if you aren't skilled in managing your bills. That sounds like a bad investment to me.

That's another point: beware of those who have a vested interest in getting you to go to a more expensive school than you can afford. School guidance counselors may be in this category, if your school trades on its college acceptance record in its promotional materials.

Matt #13

Getting the degree is one thing. Finding a job with it is another. Were people taught on how to market there degree to get a job? If not then you end up waiting tables and have a degree that is useless and a monthly payment that is not excusible.

What bothers me is that the people think nothing of borrowing a ton of money(stupid is) , that the lending intitutions are stupid enough to lend them this money (stupid as)and universities can charge what they charge for that degree (stupid does) and no one wants to accept responsibility for this.

Getting a job is nowadays very difficult, even if you have experience also they are not ready to pay for your experience. i am from india, not not in india all the country's happening the same thing. instead of taking loans for education, take loans to start a business. :)

My cousin has 4 daughters who all have gone to expensive private colleges and gotten their master's degree. She is worried about the one still in law school as she says good jobs are few and far between. I just have to wonder how people so smart don't always seem to see the financial picture of what the job market is going to be when they graduate. Starting off in life with a huge student loan debt can be crushing.

I agree with you - change schools, change majors, change options. You can always go back to school later after you've tested out work in the real world.